Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows:

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Hudson Corporation is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing (referred to as outsourcing), or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows:

Demand
Staffing OptionsHighMediumLow
Own staff650650600
Outside vendor900600300
Combination800650500
(a)If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data processing operation?
– Select your Answer -Own staff, Outside vendor, Combination
What is the expected annual cost associated with that recommendation?
Expected annual cost = $
(b)Construct a risk profile for the optimal decision in part (a).
What is the probability of the cost exceeding $700,000?
Probability =

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